How does the Colorado Department of Labor and Employment (“CDLE”) view unlimited PTO/vacation (used interchangeably) policies? Permissible, but proceed with caution in administration and upon termination of employment—many policies may be unlimited in name only.

Over the past few years, unlimited PTO policies have surged in popularity for Colorado employers. As reported in a previous advisory, in August 2019, the CDLE issued a regulation stating that the Colorado Wage Claim Act (“CWCA”) “does not allow a forfeiture of any earned (accrued) vacation pay.” Subsequently, in the Nieto decision, the Colorado Supreme Court resolved any outstanding doubt, holding that employers must pay employees’ earned and determinable vacation upon termination, regardless of any forfeiture policy.

The “earned and determinable” language begged the question of whether employers are required to “pay out” anything if a terminated employee received PTO under an unlimited plan. The general consensus was, “no, because nothing is earned.” The CDLE has spoken, affirming this conclusion but providing important caveats.

In INFO #14, the CDLE explains that true unlimited PTO policies do not require payout because nothing is earned and determinable. However, employers with unlimited policies in name only will still be required to pay out leave upon termination of employment. The CDLE provides the example of a company which “provides ‘unlimited’ PTO but doesn’t actually let employees take over 120 hours in any given year. What [the company] provides isn’t actually ‘unlimited’ PTO, it’s 120 hours of PTO per year. So departing employees must be paid any unused portion of their 120-hour allotment.” Critically, the CDLE further explains that leave policies may be established by a “written document, verbal policy, or informal practice.” (Emphasis added).

INFO #14’s revisions pose several issues. What constitutes an informal policy? At what point does a “verbal policy or informal” practice override a written policy for unlimited leave? Even if a policy is truly unlimited, what is an employer to do if an employee “abuses” the unlimited policy? How is “abuse” defined? What if the expectation of regular attendance fluctuates by department? What to do if an employee is meeting all metrics except regular attendance?

The point is, while the CDLE’s restrictions might make sense conceptually, in application, this is the stuff of nightmares. The administrative burden is as much a barrier as the legal considerations, and even well-meaning employers will find themselves out of compliance. Seeing as there is no requirement in Colorado to provide PTO/vacation, some employers may find themselves reconsidering their current policies.[1] In practical effect, the CDLE’s guidance may result in less favorable terms to employees, as employers repeat the old adage, “no good deed goes unpunished.”

[1] The Healthy Families and Workplaces Act places an affirmative obligation on employers to provide paid sick leave and public health emergency leave.